The hot buzz in the health care industry
these days is the consumer-directed
health plan.
“Consumer-driven health plans focus on
turning health care users into educated,
empowered, accountable health care consumers,” says Sally Stephens, founder,
owner and president of Spectrum Health
Systems. “Defined narrowly, consumer-driven health care (CDHC) refers to health
plans where employees have a personal
health account, such as a Health Savings
Account (HSA) or a Health Reimbursement Arrangement (HRA).”
Smart Business asked Stephens about
the benefits and drawbacks of these programs.
In a consumer-driven health plan, who pays?
The type of plan determines if the
employer, employee or both can make contributions to the plan. The CDHP phrase is
often used loosely to refer to defined contribution health plans under which employees receive a fixed dollar contribution from
an employer and choose among various
plans. Richer plans generally require larger
employee contributions in addition to
those made by the employer.
In contrast to traditional managed-care
plans, CDHC allows employees to customize their health benefits, such as trade
lower premiums for higher out-of-pocket
maximums. CDHC charges employees the
actual cost of insurance and lets providers,
instead of insurers, set prices for their services and reap the benefits of innovation
while offering employees competitive quality and cost information about both insurers and health care providers.
CDHPs involve either an HSA or an HRA.
Employees, employers or both can make
contributions to an HSA while employers
only fund the HRA. Deposits and withdrawals of an HSA are tax-free.
What is involved?
Generally, CDHPs involve a three-tier
structure of payment for health care: a tax-exempt health account that an individual
uses to pay for health expenses up to a certain amount, a high-deductible health insurance policy that pays for expenses over the
deductible and a gap between those two in
which the individual pays any health care
expenses out of their own pocket.
Also, individuals have the opportunity to
save money that they do not spend in a
given year for health care expenses in
future years (or, in some plans, for withdrawal during retirement). There are support systems (usually on the Internet) to
help individuals select good providers, get
reasonable prices, track their health care
expenses and improve their health.
What groups are more likely to benefit from
CDHP?
While the majority of consumer-driven
health plans are generally designed for
larger self-insured employers, there are
providers that focus on the small- to mid-sized market (two to 500 lives).
Can a business save money by having a
CDHP for its workers?
According to the Hewitt Associates 2005
Study, ‘companies with significant enrollment in consumer-directed health plans,
such as account-based plans and customized build-your-own that allows employees to tailor a plan based on their
individual health and financial needs, are
experiencing rate increases well below the
national trend or, in some cases, even
decreased costs.’
United Benefit Advisors’ 2006 Health
Plan Survey shows that consumer-driven
health plans had the lowest premium
increases, averaging 5.7 percent compared
to an average 8.6 percent increase for the
traditional health plans.
Do insurance companies go along with CDHP
plans?
Many insurers, economists and actuaries
believe that consumer-driven health plans
can significantly lower medical trend rates
for the next several years. Generally, they
predict that CDHP premiums will grow at
roughly half the rate of traditional managed care plans. Insurers believe in the
shared responsibility strategy that promotes healthy lifestyles, quality care and
efficient purchasing of medical care. It is
merely the financial lever that ideally propels behavior change.
What is your experience with the success of
CDHP?
In most cases, this new approach supports a shift in how employees think about
the employer’s role in providing medical
benefits. The focus is on improving health
and maximizing the value one receives
from medical care. The employer’s role
shifts from being a parent to a partner with
employees.
Employers who consider CDHP must
understand that, regardless of income
level, a thoughtfully designed plan typically
lowers total cost-share for healthy employees and does not significantly alter costs
for the chronically or critically ill. It is the
moderate users of health care services
who stand to gain or lose and these are the
ones most able to control their spending
through behavior change.
SALLY STEPHENS is the founder, owner and president of
Spectrum Health Systems. Reach her at (317) 573-7600 or
[email protected].